I Love Dolby Labs

Like Ulysses tied to the mast, I hear the siren song of Dolby Labs (NYSE: DLB  ) and am powerless to resist. Especially since the voices sing to me in surround sound.

If you've ever gone to the movies, watched a DVD, or turned on your home stereo, you know that Dolby is the king of sound technology. The double-D logo is synonymous with quality sound systems. What you might not realize is that the Motley Fool Stock Advisor recommendation doesn't make the actual components that go into your stereo or DVD player; instead, it licenses its technology to companies like Sony (NYSE: SNE  ) , Microsoft (Nasdaq: MSFT  ) , and Motorola (NYSE: MOT  ) , which incorporate the technology into their products.

More than three-quarters of the company's revenues came from licensing in 2006, and while half of that has traditionally been from sales of DVD players, the sound maven is set to capture larger segments of additional markets. Its sound technology is already the standard digital format for next-generation Blu-ray and HD-DVD disc players, as well as a requirement for all new TV tuners being sold this year and beyond. Add in gaming systems and its cinema sound technology, and Dolby is poised to create some roof-raising noise.

That's not to say it doesn't have competition. DTS (Nasdaq: DTSI  ) competes as a standard for stereos, DVD players, and even movies. Look in the area of the Dolby logo and you're bound to see a DTS one, too. Smaller SRS Labs (Nasdaq: SRSL  ) is trying to nudge its way in, and QSound Labs (Nasdaq: QSND  ) , which actually licenses Dolby technology, is moving to capture a big share of the mobile phone sound technology market.

But Dolby still reigns supreme. While analysts expected the demise of the DVD player to hurt Dolby's performance, instead it drove it higher this past quarter, as revenues rose 15% and earnings rose 73% year over year. It was the "old tech" stuff, plus sales of notebook computers (that come standard with a DVD player), that powered licensing revenues 19% higher.

That's why I've put my money where my ears are and invested in Dolby. Technologies come and go, and the standard DVD will fade, to be sure. But next-gen tech will come along, and Dolby will be a part of it. Movies on demand will be heard in Dolby Digital -- and, in fact, will be shot with the cinema technology that it's deploying.

The only difference between Ulysses and me is that this siren song is music to my ears.

Dolby is a recommendation of Motley Fool Stock Advisor. Microsoft is a recommendation of Motley Fool Inside Value. Whatever your investing style, the Fool has a service for you.

Fool contributor Rich Duprey owns shares of Dolby but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy sounds like it's coming from all around you.


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